How would a “hard” Brexit impact the Czech Republic?

As the deadline date for Brexit looms ever closer, Czechs are asking
themselves what the economic impact of a “hard” Brexit would be. A
report published by Česká spořitelna, says that as the country’s fifth
largest trading partner, the UK’s exit on WTO rules could cost tens of
thousands of Czech jobs and around CZK 55 billion. However, the economic
impact would be too small to affect projected economic growth.

Photo: Tumisu, Pixabay / CC0
The Brexit saga has proven to be unpredictable and far from over, but as
the deadline date of March 29th looms ever closer and the possibility of a
hard Brexit becomes more real by the day, Czech media and economists are
looking into what the various scenarios would mean for the country.

Tereza Hrtúsová is an analyst from the country’s largest bank, Česká
spořitelna, which recently published its own projection of how Brexit
could affect the Czech Republic. Asked about the impact on the Czech
economy in case of a “hard Brexit”, which would result in the UK
leaving the EU completely and trading on WTO rules, she had this to say.

“According to our analysis, Brexit may cut Czech GDP by up to 55
billion
which is about 1.1 percent of GDP. That could mean the loss of 40,000 Czech
jobs. Most affected would be the automotive, electronics and engineering
sectors.”

The projected cut in GDP is unwelcome, but unlikely to cause great impact.
With the Czech National Bank’s GDP growth projection in 2019 currently
lying at 3.3 percent, a hard Brexit would lead neither to a recession nor
slow down growth enough to cause economic stagnation.

The impact would be relatively low because little of the actual value of
exports is retained in the Czech economy. In the case of the most affected
sectors such as car manufacturing and electronics, retained value only lies
at 43 and 38 percent respectively. A surprisingly welcome consequence of
what many describe as the “fitting-shop” economy, which relies heavily
on assembling products rather than their research and development.

“The worst case scenario would hit our citizens that live or study
in
Britain as well. Uncertainty surrounding the recognition of their academic
titles and pension rights would arise. These questions are surrounded by a
thick layer of smoke right now and we would have to start unravelling them
very quickly.”

Whether “hard” or “soft”, Brexit is sure to affect the Czechs in
one way - Britain is the largest non-Eurozone member, and its departure
will give the Eurozone camp an even larger comparative voting majority than
it has now. Furthermore, after Brexit, Czech GDP per capita is
likely to rise relating to the EU average, slashing the amount of EU
funding the country receives.